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PRC State Council announces seven new Free Trade Zones

On 31 March 2017, China's State Council approved the establishment of seven new Free Trade Zones across China to promote foreign direct investment into China and open up the country further to free trade.

A statement issued by the vice commerce minister confirmed that the new Free Trade Zones (FTZs) will be in Liaoning, Zhejiang, Henan, Hubei, Sichuan and Shaanxi provinces and the municipality of Chongqing.

Zhejiang's FTZ will focus on international maritime services and international oil storage, while Liaoning will focus on deepening state firm (SOE) reform.

Chongqing's FTZ will aim to promote the development of China's 'One Belt, One Road' initiative while Henan will focus on international logistics and transportation.

The State Council’s announcement was made nearly four years after the establishment of the first FTZ in Shanghai. Further FTZs in Tianjin, Fujian and Guangdong followed in 2015.

The announcement comes at an interesting time. The collapse of the Trans Pacific Partnership (TPP) Agreement and the growing hostility of the US toward free trade following the election of Donald Trump, the decision of the UK to leave the European Union (Brexit) and China’s increasing willingness to invest in overseas markets under the 'One Belt, One Road' policy has meant that China has become increasingly more important player in the global economy. The Chinese Government is keen to capitalise on these developments and increase its share of the global trading market. The establishment of these seven new FTZs is no doubt a part of that strategy.

Whether the new FTZ’s will be a success remains to be seen. If done correctly, as in the case of the UAE, South Korea and Malaysia, the establishment of free trade zones can encourage investment and the growth of new industries. In other parts of the world, however, a larger number of FTZ’s have marginal cost benefits and still more effectively fail. With one or two exceptions, China’s FTZs are widely considered to be a success in terms of liberalising trade and encouraging foreign investment. Having said that; red tape, currency controls and lax Intellectual Property (IP) laws can still make China a difficult place for foreigners to do business. Time will therefore tell as to whether these seven new FTZ’s will achieve the same success as their predecessors.